TSMC: The Silicon Shield

Taiwan Semiconductor Manufacturing Company Limited, together with its subsidiaries, manufactures, packages, tests, and sells integrated circuits and other semiconductor devices in Taiwan, China, Europe, the Middle East, Africa, Japan, the United States, and internationally. It provides a range of wafer fabrication processes, including processes to manufacture complementary metal- oxide-semiconductor (CMOS) logic, mixed-signal, radio frequency, embedded memory, bipolar CMOS mixed-signal, and others. The company also offers customer and engineering support services; manufactures masks; and invests in technology start-up companies; researches, designs, develops, manufactures, packages, tests, and sells color filters; and provides investment services. Its products are used in high performance computing, smartphones, Internet of things, automotive, and digital consumer electronics. The company was incorporated in 1987 and is headquartered in Hsinchu City, Taiwan.

Executive Summary

Taiwan Semiconductor Manufacturing Company (TSMC) is the world's dedicated semiconductor foundry. It manufactures ~90% of the world's advanced chips (AI, Mobile, HPC). TSMC effectively acts as the manufacturing arm for Nvidia, Apple, AMD, and Qualcomm. Our thesis is simple: TSMC is the only foundry capable of executing the roadmap required by the AI revolution.

1. The Manufacturing Moat

Making advanced chips is now the hardest manufacturing process on Earth.

Yield Leadership: TSMC consistently achieves higher yields (fewer defective chips) than Intel or Samsung. In the foundry business, Yield = Margin.
Packaging Dominance: TSMC's CoWoS (Chip-on-Wafer-on-Substrate) advanced packaging technology is the only way to build Nvidia's H100/Blackwell GPUs. Capacity here is the bottleneck for the entire AI industry.
Scale: TSMC's massive volume allows it to amortize the colossal R&D and CapEx costs better than any competitor.

2. The Customer Ecosystem

TSMC does not compete with its customers (unlike Intel/Samsung).

Trust: Because TSMC is purely a foundry, fabless companies (Apple, Nvidia) trust it with their most sensitive IP.
Standard: The entire EDA ecosystem (Synopsys, Cadence) optimizes for TSMC's process nodes (N5, N4, N3) first.

3. The Geopolitical Discount

TSMC trades at a significantly lower P/E multiple than its US peers due to "The China Risk."

The Silicon Shield: We argue that Taiwan's central role in the global economy actually protection. A conflict would destroy the global economy ($2T annual impact), incentivizing all powers to maintain the status quo.
: TSMC is diversifying its footprint with new fabs in Arizona (USA), Kumamoto (Japan), and Dresden (Germany), slowly reducing the single-point-of-failure risk.

TSMC: The Silicon Shield

Executive Summary

1. The Manufacturing Moat

2. The Customer Ecosystem

3. The Geopolitical Discount

Risks to the Thesis

Conclusion

TSM Valuation Model

Taiwan Semiconductor Manufacturing Company Limited (TSM)

The Semiconductor Primer

Artificial Intelligence Primer

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